What is remarkable in all these is that Tamil Nadu produces not
even five lakh bales out of the estimated 120-lakh bales annual cotton
consumption requirement of its mills. So, it is largely a combination of native
enterprise, unique skills sets and advantages of cluster development, built with
time, that explains the State's predominance in India's cotton-based textile
But all these are now threatening to come apart, courtesy a series of adverse
developments that have converged into a deadly cocktail during the last decade
or so. That the industry is today in a state of flux is an understatement at
The first issue has to do with the raw material — cotton — itself. Some 60-70
per cent of the State's requirement is procured from Gujarat and Maharashtra,
with Andhra Pradesh and Karnataka contributing smaller volumes. Till recently,
sourcing cotton from outside or its pricing wasn't really an impediment.
However, consequent to the unusual increase in diesel prices in the last few
years, the cost of transporting cotton from upcountry destinations has become
unviable, especially for mills in the interior pockets of Tamil Nadu.
Today, mills in competing countries, such as China and Bangladesh, are able to
haul Indian cotton in vessels through the sea route at less than a quarter of
what it costs mills located in Tamil Nadu or even in other major spinning
clusters in the country.
Detailed freight cost calculations for transporting cotton from Rajkot in
Gujarat to a port in China via Mundra (inclusive of port handling charges) puts
its at around Rs 1.34 a kg. This is as compared with Rs 4 for moving the fibre
from Rajkot to Namakkal by road.
The freight advantage has enabled China and Bangladesh to derive a huge
competitive edge compared to the industry in Tamil Nadu (and much of India) in
sourcing the cotton that is grown in India itself! It has led to mills here
impressing upon the Government the need to levy a freight equalisation tax of at
least Rs 2,500 a tonne on cotton exports, to set off what it considers as an
unfair freight advantage.
Tamil Nadu mills now incur Rs 4-5 a kg for bringing and unloading cotton from
Gujarat and Maharashtra. Ironically, this cotton that is spun into yarn by the
mills is then sent back as yarn for weaving into cloth by powerlooms in Bhiwandi
or Ichalkaranji in Maharashtra. It means spending an equal amount again on
transporting processed cotton back to the States from where the white fibre was
originally produced. That raises the question: What stops Tamil Nadu from
producing its own cotton, considering that the yarn from the huge spinning
capacities of its mills cannot be entirely consumed within the State?
Here, there is the anomaly from the value-added tax (VAT) imposed by the State
Government, which has been raised from 4 to 5 per cent. It is a major impediment
for cotton development, given that the corresponding central sales tax rate on
cotton imported from other States is only 2 per cent.
That makes it cheaper for mills to source cotton from outside, rather than from
within Tamil Nadu, which levies a 5 per cent VAT on raw cotton. On top of VAT,
there is also a 1 per cent market committee fee on cotton and cotton waste,
rendering sourcing of cotton from within the State all the more expensive.
But high cotton cost is not the only problem. There are also other chickens
coming home to roost now. Mills in the State are losing their competitive
advantage in recent times on account of the rising cost and shortages of power
as well as skilled labour. Spinning mills in Tamil Nadu are currently facing up
to 50 per cent power shortages, which rules out utilisation of capital at the
ideal 90 per cent levels.
As regards labour, the first aspect concerns wage costs. These have gone up
because of general growth in labour demand from other industries as well, plus
state welfare schemes from the Mahatma Gandhi National Rural Employment
Guarantee Act, besides the provision of super-subsidised grains and other items
through fair price shops. The industry, right or wrong, views these as having
impacted work culture.
The rural poor are no longer inclined to work just to eke out a bare living,
thereby automatically putting upward pressure on the wages required to draw them
to the mills. The second aspect relates to skills. Mills today are unable to get
skilled workforce, with the skill gap widening at 50-60 per cent. Attrition
rates have also increased, and even those with minimal skills are up for grabs.
The industry, while contending that it would be meaningless to invest huge sums
on training, feels the need, though, to evolve a system for retention of their
workforce. Here, there has been a combination of circumstances that have gone
against the industry. Some three years ago, the Madras High Court ruled that the
State Government has powers to fix minimum wages for apprentices in the textile
industry, which, mills say, is peculiar to only Tamil Nadu. These, in turn, come
to no less than Rs 250 a day for raw hands, and even at this rate, it isn't easy
to get people.
Looking back, it is said that till the early 1990s, the mill worker was a much
sought-after groom. Today, though, they are a condemned lot, which people
attribute to the policy of de-licensing that led to newer mills springing up in
rural areas. The wage bill in these units, mostly around Dindigul, was only 3-5
per cent of their turnover, as opposed to the 12-18 per cent for the established
mills in Coimbatore.
With time, the latter started to bleed, with manpower costs eating into their
profits and forcing a churn. The mills that offered voluntary retirement
packages to workers managed to somehow survive, while others had to simply shut
down. In the process, the mill worker suffered erosion in both economic and
Today, the entire industry is in crisis, with high volatility in cotton and yarn
prices; sudden glut in domestic as well as global markets, resulting in huge
accumulation of yarn stocks, closure of dyeing units in Tirupur and Karur due to
environmental reasons, and acute shortages of power and skilled labour.
The spinning sector in Tamil Nadu, which alone employs six lakh workers, has
incurred cash losses of more than Rs 7,500 crore in January-September. Since the
end of May, for the first time in history, it has gone for a 35 per cent
One hopes there is some light at the end of the tunnel. Currently, the scenario
out there is pretty bleak.
Hindu Business Line, India, dated